An Unusual Path to Big-Time Trading

Published: September 27, 1995

Standing mute yesterday in Federal District Court in Manhattan, his wrists shackled, his feet shuffling, Toshihide Iguchi hardly looked like the kind of bold trader who some Wall Street rivals said could buy and sell hundreds of millions of dollars of Treasury bonds in a matter of seconds.

Mr. Iguchi was arraigned on charges of forgery and falsifying bank records. His former employer, Daiwa Bank Ltd., says he has acknowledged that he began unauthorized trading of United States Treasury bonds 11 years ago, creating losses that the bank puts at $1.1 billion.

Mr. Iguchi, who is 44, stood as his court-appointed lawyer, Leonard Joy, waived a reading of the charges and United States Magistrate James Francis 4th ordered him held without bail for a preliminary hearing on Oct. 10.

He was arrested at his home in Kinnelon, N.J., about 30 miles northwest of Manhattan, on Saturday night.

Mr. Iguchi was an unlikely candidate to rise to executive vice president of a major Japanese bank. He was born in Kobe, Japan, but never worked in that country; he came to the United States when he was 20 to study. Rather than attending one of the powerhouse universities from which Wall Street often recruits, Mr. Iguchi enrolled at Southwest Missouri State University, in Springfield, Mo., a school best known for its drama program, whose students have included Kathleen Turner, John Goodman and Tess Harper.

Mr. Iguchi majored in psychology, minored in art, and was a cheerleader. He received a bachelor's degree in 1975.

"He was a good student, a personable chap -- and clever, too," Howard Matthews, a mathematics professor and adviser to foreign students, told Bloomberg Business News.

Mr. Iguchi's first job was at a car dealer. In 1976, he joined Daiwa's securities depository section, which processes securities accounts. In 1984, Daiwa's New York branch began short-term trading in United States Treasury bonds and Mr. Iguchi was put in charge -- and, in a breach of standard security operations, was allowed both to make trades and to keep the records of his activity.

"We really believed in him," Akira Fujita, Daiwa's president, said at a news conference at the bank's headquarters in Osaka. "He created a system where he was in charge of everything."

Using that system, Mr. Iguchi built a reputation for vigorous trading; Daiwa says he made as many as 30,000 unauthorized trades in the last 11 years.

Theodore Ake, government trading manager for Kemper Securities, said that "if it's the same guy we're thinking of, they used to call him 'Big Foot' around the desks."

"We don't know how he did it," Mr. Ake added, "but this guy every so often would come with a very large bid for long bonds that would sit on the screens for a long time."

Other traders said Mr. Iguchi was often abrupt and aggressive. Sometimes, traders said, Mr. Iguchi would trade as much as $500 million of United States Treasury securities in a day.

The former head trader at a bond firm told Bloomberg that Mr. Iguchi would sometimes call five or six bond firms in a row, buying $50 million to $100 million of 30-year bonds from each. As word of his buying spread, prices would climb, giving Mr. Iguchi an opportunity to dump what he had just bought for a quick profit.

Unauthorized trading was never detected by his employer, but on July 13, according to the charges filed yesterday, he described his trading activities in a letter to Mr. Fujita, apologizing and outlining techniques, bank officials said.

They added that Mr. Iguchi, who was dismissed on Monday, apparently engaged in the activity not for his own profit but to protect his reputation as an astute bond trader after he suffered a loss of $200,000 in one of his early trades.

Mary Jo White, the United States Attorney in Manhattan, agreed.

"It looks like this was money used to cover trading losses," she said. "It was trading done on behalf of and for the benefit of the bank." In Kinnelon, Mr. Iguchi and his wife, Vicki, live in a large, relatively new Colonial-style home for which they paid $330,000 in 1991, taking out a mortgage for $247,500, local property records show. They had owned a smaller home in Kinnelon, selling it in 1993 for $122,000, and previously lived in Milford, Pa., near the border with New Jersey and New York.

Their current home has a Japanese rock garden at the front, with goldfish swimming in a pond. There is also a basketball hoop; a lone basketball sat on the driveway last night.

According to neighbors, the Iguchis, who have lived in the home for the last four years, kept largely to themselves.

"We hardly ever saw them," said Sam Levine, who lives across the street. "Even during the summer, when everyone around would have a picnic or a family gathering, they wouldn't."

Another neighbor, who spoke on condition of anonymity, described the family as "reclusive."

The Iguchis have two sons, neighbors said, a 16-year-old in high school and a 18-year-old who is a freshman in college.

An answering machine at their home provides messages in Japanese and English; the latter says, "No one is home to take your call; please leave a message."

No one responded to several messages left yesterday.

If convicted, Mr. Iguchi faces up to 30 years in prison and $1 million in fines.

Photo: Toshihide Iguchi, who was arrested in connection with Daiwa Bank's $1.1 billion loss, shown in a 1974 yearbook photo from Southwest Missouri State University. (Associated Press) Chart/Photos: "Trading Into Disaster" The story is familiar: A trader with too much power and too little oversight bets big and loses, then tries to cover his tracks but only makes matters worse. Similar tales have been heard in recent years at banks, brokerage firms and even an oil company. Here are some prominent cases of traders gone astray. Toshihide Igichi Employer: Daiwa Bank Losses: $1.1 billion An executive vice president who both ran the bank's New York securities custodial operations and traded Treasury bonds, Mr. Iguchi apparently lost $200,000 in bond trading and then spent 11 years trying to recoup. Struggling to make good his losses, Mr. Iguchi is said to have sold bonds from the bank's portfolio without permission and then forged records to hide his acts from superiors, who did not catch on until he confessed to the bank's president in July. Nicholas W. Leeson Employer: Barings P.L.C. Losses: $1.4 billion A 28-year-old trader in the Singapore office, Mr. Leeson is said to have used futures contracts to bet heavily on a rise in Japanese stocks, and then doubled his bets after the Kobe earthquake caused the market to tumble. His control of trading records in his office enabled him to conceal his rapidly mounting losses until he suddenly fled in February; he was arrested in Germany in March and faces criminal charges. Yukihusa Fujita Employer: Showa Shell Sekiyu Losses: $1.1 billion The general manager of the finance department at Showa Shell Sekiyu K.K., a Japanese subsidiary of Royal Dutch/Shell, accumulated losses of $1.06 billion in speculative currency trading through 1992. Two superiors who learned of his losses but did not act resigned when the debacle came to light in 1993, as did the unit's chairman and president. Joseph Jett Employer: Kidder, Peabody False Profits: $350 million Mr. Jett was chief goverment bond trader and a highly paid star at Kidder until April 1994, when the firm said it discovered most of Mr. Jett's profits were phony. Mr. Jett is said to have fooled the company's accounting system into crediting him with $350 million in profits from ficticious trades, while is real trading lost the company $100 million. The phantom profits not only improved the performance of Mr. Jett's trading desk, but brought him a $9 million bonus in 1993. Mr. Jett has denied any wrongdoing. Victor Gomez Employer: Chemical Bank Losses: $70 million The bank held large positions in Mexican pesos when that currency was suddenly devalued in December. The bank attributed its losses to a trader who had far overreached his authority. People close to the bank said the offending trader was Mr. Gomez, a vice president in the currency group. Howard A. Rubin Employer: Merrill Lynch Losses: $377 million Mr. Rubin was head of mortgage securities trading. The firm said he took a risky $500 million position in mortgage-backed deriviatives in 1987, ignoring instructions to thw contrary, and did not disclose it. Merrill said it learned of the position only after the derivatives had piled up huge hosses. The Securities and Exchanged Commission suspended Mr. Rubin from the industry for nine months in 1990; he settled with the company without admitting wrongdoing and now works for Bear, Stearns & Company. Paul W. Mozer Employer: Salomon Brothers Fine: $290 million As head of the government trading desk in 1991. Mr. Mozer side-stepped new rules limiting the amount of securities a single dealer could but at Treasury auctions by submitting false orders in the names of unwitting Salomon clients. The orders came to light in August 1991; Mr. Mozer was sentenced to four months in prision, the firm was fined and its chairman, John H. Gutfreund resigned. Photos of Nicholas W. Leeson, Joseph Jett, and Paul W. Mozer.